Donald Trump’s aides have hatched secret plans to oust the chairman of the Federal Reserve and allow the president to set interest rates, according to reports.
The allies have reportedly drawn up a series of proposals for how monetary policy could be managed in a second Trump administration, including rolling back central bank independence, which has been essential to the functioning of the economy and financial system lately. decades.
Supporters of the Republican candidate have written a 10-page document presenting a new vision of the functioning of the central bank and monetary policy, according to the Wall Street Journal.
He understands the power of expel Jerome Powell from his post as president of the Federal Open Market Interest Rate Setting Committee.
Mr. Trump appointed Mr. Powell to the position during his first term as president, after refusing to grant outgoing Chair Janet Yellen a second term at the Federal Reserve.
Ms. Yellen is now Treasury Secretary to Joe Biden, the president.
The document also suggests that Mr. Trump could be consulted on interest rate decisions by the chairman of the Federal Reserve, who would then negotiate the final decision on borrowing costs with other policymakers on his behalf .
Less radical changes could be made to the central bank, including subjecting its regulations to more regular reviews by the White House, the WSJ reported.
As president, Mr. Trump regularly calls for lower interest rates to stimulate the economy and expressed dissatisfaction with Mr. Powell’s decisions. In 2019, he said Fed officials had “no courage, no sense, no vision.”
Steps to limit the Fed’s independence would likely prove controversial. The independence of central banks has become a central pillar of the modern financial system.
Michael Pearce of Oxford Economics said: “Any serious attempt to undermine the Fed is likely to backfire. There are many historical examples where political pressure to lower rates backfired and caused the Fed to adopt tighter policy than it otherwise would have.
Even if interest rates fell, financial markets would recognize the risk of higher inflation and charging the U.S. government a higher borrowing cost to compensate. This would offset any expected recovery in the economy.
The president’s temptation to lower interest rates under the proposed system could also prolong the inflation crisis in the United States.
James Knightley, an economist at ING, said: “If Trump lets inflation run amok, his own supporters are likely to be hit the hardest. Trump may want to lower interest rates, but if inflation takes hold, it could pose the biggest threat to the success of his presidency.”
Strong consumer spending and stubborn inflation have raised expectations that the Fed will have to keep interest rates higher for longer in its fight to contain rising prices.
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